Now let's say you are 25 years old and want to be a millionaire when you retire at 65. You have 40 years to accumulate wealth. You can deposit $4,000 into your retirement account at the end of each year until age 65. Please answer the following two questions:

(1) Let's say your money will be invested in the stock market. Historically, the US stock market has averaged 12% annual returns. To be conservative, we assume the return on your investment will be a constant 10% each year for the next 40 years. Can you become a millionaire at the age of 65? Please show your calculations.

(2) Assume your money will be invested in US government bonds. Let's assume the return over the next 40 years will be a constant 8% each year. Can you become a millionaire at the age of 65? Please show your calculations.

Answer rating: 100% (QA)

SOLUTION To answer these questions well calculate the future value of the investment using the compound interest formula The formula is FV PV 1 rn Whe... View the full answer